Emerging limits to mining

Coal mining in India. Photo by: Pedro Walpole, SJ

Pedro Walpole, SJ and Sylvia Miclat

Mineral extraction, whether metallic and non-metallic, and including coal and other fossil fuels, is a continuing environmental and social debate at the policy level and a bitter development reality pill that some countries are forcing themselves to swallow as a response to poverty alleviation.

In a global setting that is seeing metal prices at their highest since decades ago, but also in an environmental context that is more tenuous and fragile since 20 years ago, the business and industry of mining was a topic that appeared to have been too positively accommodated in Rio+20 two weeks ago. From an international perspective, developmental at that, no limits to mining were defined, seemingly content to reiterate the 27 principles of the Rio Declaration on Environment and Development or Agenda 21 agreed upon during the Earth Summit in 1992.

Agenda 21 defined the global approach to sustainable development as we entered the 21st century. Environmental protection and the precautionary approach, impact assessments, sustainability of activities to equitably meet the needs of present and future generations, participatory decision making, environmental legislation, and eradication of poverty were some of the principles that guided each country’s definition and implementation of sustainable development.

While there was no explicit reference to extraction of natural resources, Principle 2 states that:

“States have, in accordance with the Charter of the United Nations and the principles of international law, the sovereign right to exploit their own resources pursuant to their own environmental and developmental policies, and the responsibility to ensure that activities within their jurisdiction or control do not cause damage to the environment or other States or of areas beyond the limits of national jurisdiction.”

Thus, Rio 1992 and Rio 2012 did not put limits to mining and the continuing speculations and rising investments in the sector are also spawning some of the most unethical practices with top mining executives among the most grossly and shamefully overpaid, one of the many grievances put forward by the Occupy movement. With more than 50% of youth unemployed in the United States and Europe, the salaries and perks that top corporation officers receive are fuelling the resentment and anger.

From Qatar and China

But interestingly, two recent business developments seem to be putting some brakes to this mad scramble for higher and higher payoffs and payouts to executives.

The much anticipated US$ 70 billion mega-merger between commodities giant Glencore International and the miner Xstrata collapsed last 27 June due to two main reasons.

One is that representatives of Qatar Holdings, Xstrata’s second-largest shareholder, are insisting on a 16 percent higher offer from Glencore for each Xstrata share. Current offer stands at 2.8 Glencore shares for each Xstrata share, and the Qataris want this increased to 3.25.

The second reason is the unacceptability of the multimillion-pound retention package for Xstrata’s senior executives as the merger occurs, in recognition of the executives’ past, present, and future performances. The payouts, as put forward in the original terms of the merger, will total £240 million to 73 senior Xstrata officials, with Mick Davis, Xstrata CEO, appropriating for himself £28.8 million over three years to stay in his post after the merger, with no performance targets.

Xstrata’s chairman, Sir John Bond, stands accused by Xstrata investors and shareholders that he is not fighting for his investors. With this development, Xstrata is forced to re-write the retention bonuses linked to the merger and offer new terms. These may include retention payments to be paid wholly in shares rather than cash and the payouts for senior management, including that of Mr Davis, to be contingent on the level of cost savings achieved by the merger.

The industry is caught between a rock and a hard place. Having given up on the unethical and in a developed world where 50% of youth are unemployed, we cannot laud a man, however good, with £29 million. With no disrespect to Mr Davis and his actual capacities, we seem to be putting the limit below £29 million. This may be considered a slight success for the Occupy movement, who documented that mining executives were amongst those who received extreme benefits.

A second interesting development is the buyout of the 137-year-old London Metal Exchange (LME) for £1.39 billion (US$ 2.16 billion) last 15 June by the Hong Kong Exchanges and Clearing Ltd (HKEx). LME is one of the few remaining private stock exchanges in the world and one of Britain’s last great independent financial markets. Massive windfalls are expected for LME’s largest shareholders: JP Morgan, Goldman Sachs, and Metdist, the metal brokerage. The deal will pull together LME, that has 80 percent of the world’s base-metal options, and China’s futures contracts, that has 42 percent of the world’s metal consumption.

While operations will remain in London, we don’t know what this means, apart from Hong Kong’s instant entry into commodities trading amidst China’s increasing demand for metals. This transition to Chinese hands leads for interesting times, as this buyout is happening also while China is cornering rare minerals globally and purchasing massive land tracts in Africa and other developing countries. Seemingly, the LME buy-out facilitator got a cool £10 million and we still think this needs to be reduced.

Developing a sense of accountability and ethics

Rio+20 did not contribute to a greater ethics of mining and merely reaffirmed the idealism of mining, just to mention it and get it out of the way.

But there is a growing sense of accountability coming from shareholders, as illustrated in the Xstrata-Glencore merger attempt. Outside of controlling their profit margins, they did find the executive payments excessive.

Another area of accountability that’s not addressed is the development of the policing of mining, internationally and globally. This policing needs to focus on the monitoring of standards and the prevention of human rights abuses.

International standards that will apply to all countries equally need to be enforced and monitored from the industry itself. In countries such as the Philippines, often there is no basis or technical capacity to prevent corruption and supplement one’s salary.

Ensuring that human rights abuses do not take place include the promotion and practice of ethics of management and the amount of money people get, ethics of disaster or the accountability for actual disasters, and the ethics in human rights in how people are treated before, during, and after mining activities. The killings of environmental activists that are going on and reported internationally are unacceptable.

Mining in these times is very profitable and will probably make richer not a few people, and finance substantially not a few poverty alleviation programs. But mining is also happening when ecosystems are so fragile, vulnerable, and at risk, when cultures that live within these mineral-rich areas are likewise vulnerable and holding on to their cultural integrity and equity through their lands and resources.

Mining upsets all these. By its very nature, mining has the worst social impact and creates division amongst people and marginalization. It is the worst introduction to industrialization and does not see the value in any culture that can withstand a global culture. The disasters mining has caused in some parts of the world illustrate the threats that remain unresolved.

Are there emerging limits to mining? At best, business is getting some ethical standards, but can civil society and governments also start doing so?

References: Agenda 21, The Independent, Financial Times, The Guardian, Wall Street Journal, The Telegraph, and The New York Times.

Pedro Walpole, SJ and Sylvia Miclat work with the Environmental Science for Social Change, a Jesuit research organization in the Philippines.


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